12 July 2014

Marketing in the Boardroom

I recently gave a lecture at an event organised by the Worshipful Company of Marketors of which I am currently the Middle Warden. I shared the platform with Professor Paul Baines of Cranfield University. This is the content of my lecture.

"Marketing in the Boardroom - contribution to the overall company strategy"

Which apple do you think has changed the world the most? Was it the apple from the tree of knowledge with which Eve tempted Adam in the Garden of Eden? Or was it the Apple of Discord that Paris chose to give to Aphrodite in return for the love of Helen? This alienated Hera and Athena and led to the Trojan War. One of the few Trojan survivors, Aeneas, led a small band to Italy where he founded the people that would eventually become the Romans. Or was it the apples of the Hesperides which Hercules was commanded to steal from Hera. This is one of the best stories of the labours of Hercules as it includes the bit where Hercules kills the eagle who eats the liver of Prometheus every day, his punishment for stealing the secret of fire from the gods, and also the bit where he tricks Atlas into taking back the whole weight of the world on his shoulders. The Swiss might say it was the apple that William Tell shot off his son’s head with his crossbow that the Austrian tyrant Gessler had ordered him to do as a cruel punishment. New Yorkers would claim it was the Big Apple, the nickname for their great city. Or was it Newton’s Apple that led him to work through the principles of gravity and thus found modern physics? Perhaps some popular music fans would vote for the Beatles’ Apple label and studios.

Many people think it was the Apple Corporation that Steve Jobs founded. By the time of his death three years ago it had become the most valuable technology business in the world. It exceeded all the companies he had taken on and beaten: IBM, Microsoft, Sony, Nokia, Samsung and more. It can be said that he transformed the Personal Computer, Music, Movie and Mobile Telephone businesses. I would not mind betting that if he had lived he would have gone on to transform the Television business as well.

In talking about a company like Apple one would never ask the question about marketing in the boardroom. Marketing was ever present in that board room. Jobs was obsessed with the customer and would give speeches where he would say “we love our customers” over and over again. He despised the junk that other companies sold.

Traditional marketers live in a short-term world built on an ever narrowing platform of marketing communications and promotions. They are often limited to running agency relationships and enabling the sales force, while constantly being squeezed for funds they don't have. But the days of marketers operating in a vacuum and marketing and business strategies being created independently of one another, I hope, are ending. The best marketers are now creating integrated perspectives that start with the growth aspirations of their entire organisation. Visionary marketers are implementing new and better ways to win new customers and build deeper relationships with customers while keeping competitors at bay.

I have felt passionately about this for many years believing that marketing should not just be a department but be the whole purpose of the business. I consider myself very fortunate in spending the first part of my career with four of the world’s great brand owners: Procter &Gamble, Mars, Pillsbury and Sony.

I began at P&G who invented the brand management system. Neil McElroy in a famous 1931 memo proposed “brand men” with a seven point description of the new role that we would all recognise today as that of the brand manager. McElroy himself became Camay brand manager, (a brand I also worked on) and later became President of P&G at the age of 43. 10 years later he left P&G to become Secretary of Defense in the US Government where he was a guiding force behind the foundation of NASA. Every P&G President since McElroy, including AG Laffley, the current distinguished holder of the post, has cut his teeth in the marketing department.

Mars was the first to adopt Rosser Reeves’ Unique Selling Proposition, (USP) as the basis of its marketing strategy. In Mars the brand manager was a mini-MD, with P&L responsibility. They ran their brand or product as a business within a business and competed for the resources of the rest of the company with his peers. They would recommend a marketing strategy on an annual basis and had to get the other partners in this strategy, R&D, Manufacturing, Sales and Finance to sign off on it to confirm their commitment to making it happen.

I first became a Marketing Director at the age of 32 when I left Mars to join a fast-growing food brokerage started by a former P&G and Mars colleague of mine. John acted as Managing Director, I was Marketing Director and Malcolm, another formers Mars colleague, was Sales Director. But all three of us handled both clients and customers. I also managed some of the sales team and a contract merchandising force. On a typical day I would drive up from Oxfordshire to Yorkshire to see a buyer at Asda in Leeds, then pop in to see a client in Halifax, then drive back, calling in to the office to catch up on messages, write reports and plan the next day’s work. I might get home at 10 or 11pm. My newly married wife Carmen, told me this was not what she had married me and travelled half way round the world for and so I sought a more normal job back in the corporate world.

The purpose of marketing is to satisfy customers at a profit. And at Pillsbury I learnt that delivering the bottom line was crucial as this company lived and died by the demands of Wall St. However this was taken to extremes. When I joined Pillsbury the company proudly boasted of delivering 13 years of consecutive quarterly growth in earnings per share, the principal measure of success. But I learnt that this was often achieved by sweating assets both tangible and intangible. It was not a surprise to me that it was acquired four years later by Grand Metropolitan, the forerunner of Diageo, which was also focused on City expectations but had a much stronger commitment to creating shareholder value through building brands.

But by then I had left to join Sony where I took on a Managing Director’s role for the first time, with full balance sheet responsibility. In Sony I set out a management structure expressed as follows:

Marketing is responsible to manage the market, i.e. the consumer. They bring that voice to the management team.

Sales brings the voice of distribution (retail, wholesale etc)

Finance ensures that the shareholders’ voice is heard - that a profit is made on the transaction.

And HR can bring the voice of employees, important stakeholders.

Any other voice, IT, manufacturing etc is subsidiary to these stakeholder voices but can be of equal value to the enterprise in delivering quality, efficiency etc. The CEO/MD’s role is to make decisions balancing the needs of these stakeholders.

Since leaving Sony I have followed a career in British Plcs and have served on several quoted company boards both in executive and non-executive capacities. There are four different roles you can perform on a public company board: Chairman, Chief Executive, Executive Director and Non-Executive Director. I have performed all four in four different listed companies, so I have seen the board room table from all sides. All in all, including subsidiary boards, I have served on some 26 different boards with over 100 fellow directors.

From my experience I have concluded that the debate about the role of marketing in UK Boardrooms is moribund. The issue is not how many Marketing Directors are on UK Boards, but is the Board focused on marketing data, however provided? Is it market focused in its decision making? Most importantly, is the customer’s voice heard in the Boardroom?

Tim Ambler is a distinguished former member of this company and a long-term member of its Think Tank, now repositioned as the Thought Leadership Group. He has recently published his memoirs The Lucky Marketeer. Tim qualified first as an accountant but after taking his MBA at MIT he was accepted back at his sponsor, IDV, as a trained marketer and rose to be its Marketing Director, then its CEO. The book is full of funny war stories from the front line of the booze trade and pithy one liners on marketing and business. Let me just quote one:

“Marketing is central to business. Company boards do three things: make money, count it and spend it. Any idiot can count it and spend it; the difficult bit is making it in the first place and that is marketing.”

The language of the Board has become ‘short-term financial metrics.’ Years of business process reengineering with emphasis on sweating the assets has led businesses to move away from market growth to optimisation. Marketers should measure how customer needs are met, how well are markets segmented. Instead of just focusing on advertising and social media they need to focus on more important strategic issues. They should seek sustainable profitable positions, identify risks and integrate efforts across the company. The results will come.

The time has come for CMOs to be more strategic, more empowered. For me, growing up in a well ordered universe like P&G and Mars it was a shock to learn that there were other less successful companies using different methods, if that’s what they were. However, this does not mean that marketing trained people are always the right people to head up companies. Some of the banks were run by marketers instead of people who actually understood risk management.

Sony was perhaps a more successful company when it was run by engineers with one eye on the technology and the other on the market. For the last 15 years it has been run by marketing people with less understanding of the technology and what it can do, and consequently less vision. iPod and flat screen TV should have been Sony territory.

This point is not just valid about Sony. I have seen research into technology product companies that indicated a significant advantage for CEOs of smaller companies with an engineering background. Midsize companies with revenues between $100 million and $1 billion whose CEOs had engineering experience had a median three year growth rate of 98%, compared to just 66% for companies whose CEO had no engineering background.

The long-running debate about Return On Marketing Investment focuses on too narrow a definition of marketing. Two years ago the Marketing Society, of which I am a Fellow, decided to present one of its Annual Awards to a finance director, thus signalling that return on investment in marketing is worthy of recognition. But the criterion for this shiny new trophy was ‘effective use of marketing expenditure’, thus falling into the same trap. The winner was indeed a communications campaign, which, while no doubt worthy, is just a limited facet of what marketing is.

One of the godfathers of marketing, Theodore Levitt, in his classic definition said that marketing ‘must work back from consumer needs’. Do consumers really ‘need ‘communications? Or do they need better products, improved service, value for money, easier lives, a safer and cleaner world, and more health and happiness for themselves, their families and friends.

What marketers must do is anticipate, or at least, identify these needs and find ways to meet them at a profit to their business. That is much more difficult, and riskier, than shooting an ad with a funny pay-off line. Marketers should take the lead with their boards in proposing disruptions to their business that will generate long term profitable growth. They need to study the landscape, set the strategy, plan to execute and take all their colleagues with them.

If you asked a hundred marketers for a definition of marketing you would probably get a hundred different answers. You might even get more as some would perhaps offer more than one. This is because marketing is both wide in its coverage and because marketing professionals work across a wide range of activities. But let me quote some of the more established definitions most of which put marketing firmly at the strategic and operational heart of the business.

Modern marketing as we understand it today was largely pioneered in America and the American Marketing Association defines marketing as: ‘The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.’

Harvard Business School, probably still the leading business school in the world, says that marketing is ‘critical for organic growth of a business and its central role is in creating, communicating, capturing and sustaining value for an organisation. Marketing helps a firm in creating value by better understanding the needs of its customers and providing them with innovative products and services.’

The Chartered Institute of Marketing, of which I am also a Fellow, defines marketing as: ‘The strategic business function that creates value by stimulating, facilitating and fulfilling customer demand.’

If Theodore Levitt is a godfather of marketing, then the grandfather is the great management thinker Peter Drucker who said ‘because the purpose of business is to create a customer, the business enterprise has two –and only two – basic functions: marketing and innovation. Marketing and innovation produce results; all the rest arecosts. Marketing is the distinguishing, unique function of the business.’ He also said ‘The aim of marketing is to know and understand the customer so well, the product or service fits him and sells itself.’

According to the brilliant author Jack Trout, ‘Today, when top management is surveyed, their priorities in order are: finance, sales, production, management, legal and people. Missing from the list: marketing and innovation. When one considers the trouble that many of our icons have run into in recent years, it is not hard to surmise that Drucker’s advice would have perhaps helped management to avoid the problems they face today.’ He wrote that in 2006 two years before the Lehman crash.

And what do I think? Marketing can be a confusing term. On the one hand it is isolating the customer need and organising the business to meet this need. In this sense everything the enterprise does is marketing. However, it is also convenient to isolate marketing as a functional activity and to consider it as an activity separate from production and finance. I am firmly in the first camp with Messrs Drucker, Levitt and Trout. At a very simple level marketing can be defined as ‘winning customer preference.’